Wednesday, December 18, 2013

Democracy on hold

The United States shall guarantee to every State in this Union a Republican Form of Government... 
-- U.S. Constitution, Art. IV, Sec. IV
Last month the city of Detroit filed the largest municipal bankruptcy case in history. For years the city has been in a steady state of decline that began when the automakers pulled up stakes and settled in the suburbs. Over the years more and more employers have left the city, leaving the municipal tax base in shambles.

Property values plummeted. Tax revenues dried up. The city couldn't afford to provide police and fire services and schools had no money.

Into the fiscal mess stepped Michigan Governor Rick Snyder who decreed that the state had the right to appoint an emergency manager, Kevyn Orr, to get the city through the crisis since local government officials couldn't seem to get out of their own way. Residents were understandably upset about the governor, in essence, voiding their local elections and choosing someone he wanted to run the city.

As a result of the uproar, the emergency manager law was tossed out by an appeals court because the law nullified the very principle of democracy. White voters in the suburbs and rural areas then approved a constitutional amendment giving the governor the power to appoint emergency managers to run cities which were teetering on the edge of insolvency. Interestingly enough, the people affected by the law were mostly black.

The problems in Detroit have to do with an eroding industrial base and very bad investment choices by the city - choices brought to the city by the very law firm, Jones Day, where Mr. Orr worked.

And now, instead of looking toward those who made the decisions that brought Detroit to its knees, the emergency manager is looking toward retired city workers to pay for a mess they had no hand in creating. By taking the city into bankruptcy, Mr. Orr is seeking to have a federal court allow creditors to raid the city's pension fund.

As an aside, Mr. Orr is being paid a salary of $275,00 to take from the old, the poor and the working class and hand it over to banks and wealthy investors. He is also living in a $4200 a month condo on the state's dime.

The city made a promise to its employees that they would receive a pension upon retiring. Most of the pensions are fairly modest and provide just enough money for retirees to get by on. But because the retirees are unsecured creditors, they have no protection in bankruptcy court. Their pensions will be sacrificed so that wealthy bondholders and bankers can get paid.

Employee unions are also under attack as Mr. Orr seeks to void union contracts and drive wages down. Union employees didn't create the fiscal problems in Detroit - yet they, too, are being asked to pay the price so that wealthy investors can cut their losses.

In addition Mr. Orr is looking at selling the city's art collection and park lands. In other words, the commons will be sold so that investors can cash a check.

And all the while the people who live in Detroit have no say in what happens to them because the governor decided to take away their right to vote.

See also:

"Detroit accused of exaggerating $18bn debts in push for bankruptcy," The Guardian (11/20/2013)


Anonymous said...

Well, look at how some of the local ultra right wing types believe the city of Houston is bankrupt, trying to declare the problem as unions and pensions ganging up on poor politicians on one hand while blaming Democrats for handing away the keys to the cookie jar. Most city workers took hits to their pension systems starting ten years ago yet the city continues to underfund pensions while blaming workers.

I don't see why a federal bankrupcy judge can't declare all investment debt in a city as defaulted and told to get in line behind those who already performed the work needed to earn a pension. Knowing a city is having a tough time financially yet investing anyway is the sign of a risk taking investor, one who consciously takes on a bigger risk in hopes of a greater reward.

The Law Blogger said...

Paul, good post. From up here in the (313), we are used to this sort of thing. Mr. Orr aside, the City of Detroit has been gutted by epic corruption for decades. There was just no way it could continue. A fellow member of the bar and former Michigan Supreme Court Justice, Dennis Archer, attempted to right the ship during his one-term stint as mayor in the late '90s but he failed; and now the city has failed. But with it's last mayor doing a quarter in the federal joint, and with the bankruptcy filing taking root, we here in the "D" are poised to move forward. Scrapping and clawing is what we know. Thanks for shining a light on us from down south; it's good for people to know what is going on up here. Also, keep up the good work in your excellent blog.